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Looking for a place to rest and answer emails between meetings?

Remember that ICBA has a hospitality suite at the Capitol Hill Club (300 First St SE, Washington D.C.) in the Eisenhower Room. This room is available on Wednesday, May 14th between 1:30pm-4:30pm.

Please also see these restaurant and cafe options around Capitol Hill!

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The FDIC is inviting comment on proposed revisions to its regulations relating to brokered deposits restrictions. Although the restrictions on accepting brokered deposits only apply to less than well-capitalized banks, all banks are affected because all banks are required to accurately report brokered deposit levels on their Call Reports, and high brokered deposit levels increase FDIC assessment amounts, are scrutinized by examiners in evaluating the liquidity CAMELS component, and require adjustments to contingency funding plans (which must build in an assumption of a prompt corrective action (PCA) downgrade).

This guide will help your formulate a comment letter. Comments are due by November 21, 2024.

Your letter does not need to be lengthy or address every component of the request for comment, but it should be customized to include details about your bank, the specific impact the proposal will have on your bank, and your concerns about the proposal. Thank you for taking the time.

In this guide you will find:

Background (below)
Instructions (below)
Step 1: Draft an Introduction (below)
Step 2: Articulate Specific Concerns about the Proposal
Full guide (PDF)
Link to the blank email (bcc'ing us) to FDIC
Registrar Filing

Send a Letter Providing Your Perspective by Clicking Here.

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Although the FDIC finalized revisions to its brokered deposits regulations in 2020, the agency now proposes to reverse significant aspects of the 2020 framework by revising the \u201cdeposit broker\u201d definition and amending the analysis of the \u201cprimary purpose\u201d exception (PPE) to the \u201cdeposit broker\u201d definition. As a result of the proposal, more deposits would be considered brokered deposits, and fewer deposits would be considered core deposits. Under the proposal, a person engaged in the business of placing or facilitating the placement of deposits of third parties would be a \u201cdeposit broker\u201d if that person engages in one or more of the following activities:

The person receives third-party funds and deposits those funds at one or more insured depository institutions (IDIs);
The person has legal authority, contractual or otherwise, to close the account or move the third party\u2019s funds to another IDI;
The person is involved in negotiating or setting rates, fees, terms, or conditions for the deposit account;
The person proposes or determines deposit allocations at one or more IDIs (including through operating or using an algorithm or functionally similar technology).
The person has a relationship or arrangement with an IDI or customer where the IDI, or the customer, pays the person a fee or provides other remuneration in exchange for or related to the placement of deposits.

Significantly, the proposed rule rescinds existing PPEs and notices granted under the 2020 final rule, and restricts future applications and notice process to IDIs (currently third-parties can apply for PPE). Accordingly, third parties and IDIs that previously applied for and received approval for a PPE, and that wish to continue offering services to covered IDIs, will incur significant costs associated with disruptions to existing business models, reclassification of core deposits, and reapplications for PPEs.

While the proposal does not make changes to reciprocal deposits arrangements, or the S. 2155 community bank thresholds Congress enacted in 2018 for reciprocal non-brokered deposits, this proposal could nevertheless negatively impact community banks\u2019 access to funding sources, liquidity management strategies, and deposit funding costs. Additionally, the proposal could impair community banks\u2019 abilities to structure deposit placements in ways that maximize deposit insurance coverage for their customers. The proposed rule\u2019s criteria for determining whether an entity is exempt from being considered a \u201cdeposit broker\u201d are stricter than the 2020 final rules, therefore, more third parties are likely to be considered deposit brokers under the proposed rule.

For example, if adopted, IDIs and third parties could no longer rely on the \u201cexclusive deposit placement arrangement\u201d exceptions, the \u201c25% test for assets under administration\u201d exception, or the \u201cenabling transactions\u201d exception, as means of avoiding brokered deposit classification. Additionally, the proposed changes would capture as \u201cdeposit brokers\u201d third-parties that receive fees in exchange for services related the placement of deposits.

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Please use the highlighted and bracketed fields in Step 1 and Step 2 as a guide when crafting your letter. Step 1 will help you draft an impactful introduction, and Step 2 will help you identify which topics are important to you and your bank. Note, you may also address topics not included in this guide. When you are done, copy and paste the language you drafted from Steps 1 and 2 into this email, and it will be sent directly to the FDIC. Please make sure you REMOVE highlights and [bracketed instructions] before copying your comments into the email.

Comments are due by November 21, 2024.

If you use some or all of the language set forth in Step 2, please be sure to also include some of your own personalized language in your letter. The FDIC will not count form or template letters as individual comments in the administrative record.\n

And, keep in mind\u2026 The comments you submit to the FDIC will be public, published in the Federal Register, and attributable to you and your bank. Confidential Supervisory Information, including examination ratings or other sensitive information should not be referenced or included in your comments.

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I am the [insert title] of [insert bank name] (\u201cBank\u201d), a [insert asset size] community bank located in [insert location.] I am writing to express my serious concerns regarding the FDIC\u2019s proposed rule relating to Unsafe and Unsound Banking Practices: Brokered Deposits Restrictions (the \u201cProposed Rule\u201d). If finalized as drafted, the Proposed Rule will harm community banks and our customers. The FDIC should withdraw this proposal.

\n[Insert high-level general description of your bank, including a short statement describing the bank\u2019s history of servicing your local community and the critical role your community banks plays as a lender to small businesses and consumers in your local area.]

\n[Insert a few sentences explaining the challenges of gathering deposits to fund the Bank\u2019s important lending activities, such as technology costs, marketing costs and competition from the country\u2019s biggest banks]. Banks that choose to partner with or utilize third party relationships to access diverse sources of funding, manage costs, and maximize deposit insurance coverage or provide other services for their customers should not be penalized as accepting \u201cbrokered deposits.\u201d

\n

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The FDIC is Proposing to Limit Community Bank Funding Sources.

\nBrokered Deposits Restrictions Impose Unnecessary Costs on Community Banks and Consumers\n
- [The issue:]
  - \nReclassifying deposits as brokered imposes serious costs and restrictions on community banks, including higher deposit insurance premiums, possibly lower CAMELS ratings, and additional regulatory scrutiny. In some cases, restrictions on brokered deposits may force community banks to forgo their relationships with third parties and terminate programs and services that benefit their customers and provide access to financial services for unbanked and underbanked consumers.
- \n[Sample response:]
  - \nI am concerned the FDIC\u2019s proposal overlooks the need for community banks to have access to diverse funding sources.
  - \nThe FDIC should protect, not limit, community banks\u2019 abilities to access liquidity and partner with third parties to offer cost effective and competitive deposit services to their customers.
  - I am concerned the FDIC\u2019s proposal creates an overly complicated and confusing framework for brokered deposits restrictions.
  - The proposed framework could harm community banks\u2019 abilities to manage liquidity and maximize deposit insurance protections for their customers.
  - The proposal will harm consumers by reducing access to financial services and increasing costs.
  - The Proposal ignores the realities of modern banking by recategorizing massive volumes of stable, sticky deposits as brokered.

Third party partnerships where fees are exchanged
- [The issue:]
  - Many community banks utilize, or may wish to utilize in the future, third party partnerships, online services, and financial technologies to facilitate deposit placements, raise insured deposits, offer specialized deposit products and services to their customers, maximize deposit insurance coverage for their customers, diversify and de-risk their funding portfolio, and broaden their deposit base to meet the lending needs of their local communities
- [Sample response:]
  - I am concerned the FDIC is proposing that a third party will be a \u201cdeposit broker\u201d in instances where the third party simply receives a fee for their services related to the placement of deposits \u2013 a condition of doing business that captures virtually all third party relationships related to deposit placement, even those that don\u2019t pose traditional brokered deposit \u201chot money\u201d risks.
  - The proposal\u2019s sweeping criteria for determining \u201cdeposit brokers\u201d will dramatically increase both the number of entities deemed \u201cdeposit brokers,\u201d and the volume of core deposits community banks must classify as brokered deposits, and will unintentionally increase liquidity risk for community banks.

\n\n

Funds for State and Local Governments\n
- [The issue:]
  - \nMany state laws require state and local governments to bank within the state \u2013 meaning community banks receive and manage a substantial volume of public deposits. Under the current rules, advisory firms that help administer these funds and investments are excepted from the definition of a deposit broker if they place less than 25% of customer assets under administration, for a particular business line, at more than one bank. However, the FDIC is now proposing that this exception will only be available if less than 10% of the total assets under management, in a particular business line, is placed into non-maturity accounts at one or more IDIs.
- [Sample Response:]
  - I am concerned the proposal\u2019s changes to the 25% test are a significant change that will negatively impact community banks that manage public funds. These deposits are an important, and stable source of funding for community banks that should not be considered brokered.
  - The proposed 10% test will result in many community banks having to report higher volumes of brokered deposits, despite the fact these funds do not pose \u201chot money risk,\u201d which will negatively impact bank liquidity.

\n\n\n

Rescinding Approved PPE Applications and Forcing Community Banks to Reapply for PPE is Both Extreme and Unnecessary.

Rescinding FDIC approved PPE applications and notices and requiring community banks to reapply for PPE is an overly punitive and costly exercise.
- [The issue:]
  - \nRescinding PPE applications and notices that the FDIC previously granted to third parties and/or partner IDIs under the 2020 rules will materially disrupt, and in some cases, effectively cease partnerships and arrangements the FDIC now considers \u201crisky,\u201d without the FDIC carrying its burden of identifying specific problems at specific institutions, and if necessary, taking enforcement actions against, specific banks and specific third parties.
- [Sample Response:]
  - I am deeply concerned by the the FDIC\u2019s proposal to rescind all approved PPE applications and notices. This is a punitive approach that is designed to target certain relationship models but that captures every approved PPE regardless of model or demonstrated risk.
  - If the FDIC believes a specific bank and its third party to pose unnecessary risks, it should follow its supervisory processes with respect that single institution and its third party rather than rewrite the brokered deposit rules for the entire industry.
  - Requiring IDIs to reapply for PPEs that the FDIC approved only a few years ago is an unnecessarily burdensome and costly exercise for community banks that will also increase the volume of PPE applications and notices the agency must process.
  - The FDIC should not force community banks to reapply for PPE and incur operational costs to reassess on-balance/off-balance sheet strategies and engage outside counsel to reassess partnerships, submit new applications, amend existing agreements and draft new contracts.

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Send a Letter Providing Your Perspective by Clicking Here.

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"", "custom_css": "", "disclaimer_text": "", "use_page_region": false, "can_access": true, "cannot_access_message": null}, {"id": 6739, "archived": false, "name": "Louisiana Congressional Delegation", "action_center": 1416, "path": "/Louisiana/", "title": "", "page_restriction_type": 1, "widgets": [{"props": {"sheet": {"id": 141247, "public_slug": "zSqMbhlDQRxmPYJnYOmB"}}, "widgetType": 14}, {"props": {"cards": {"0": {"title": "District Footprint", "buttonUrl": "https://www.icba.org/advocacy/grassroots-be-heard/state-and-congressional-district-community-bank-footprint", "description": "Specific data for each congressional district", "cardLinkType": 2}, "1": {"title": "Other Resources", "buttonUrl": "https://www.icba.org/advocacy/grassroots-be-heard/resources-and-downloads", "description": "Additional detailed resources for your meetings", "cardLinkType": 2}, "2": {"cardLinkType": 1}}, "layout": 2, "useCardColor": false, "sameCardSizeWidth": false, "useBackgroundColor": false}, 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FDIC has requested comment on a proposed rule that would exempt community banks under $5 billion in assets from special assessments to recover the loss to the Deposit Insurance Fund (DIF) arising from the protection of uninsured depositors in connection with the systemic risk determination announced on March 12, 2023, following the closures of Silicon Valley Bank, Santa Clara, CA, and Signature Bank, New York, NY, as required by the Federal Deposit Insurance Act (FDI Act).

Please send a comment letter to the FDIC supporting its proposed rule and its community bank exemption. Let the FDIC know that community banks should not be on the hook for the irresponsible actions of these larger and riskier institutions.

To send them a comment, click: SEND NOW; an email will populate with the FDIC address (with ICBA bcc'd), subject line and salutation plugged in; add your comments being sure to include your name, city, state and organization; then, hit send.

Our guide

Registrar filing

Send a Letter Supporting this Proposal Here.

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Thank you for taking the time to contact the FDIC on this important issue.

Importantly, under\nthe proposal, no banking organizations with total assets under $5 billion would\nbe subject to the special assessment. Your letter does not need to be\nlengthy or address every component of the request for comment, but it should\ninclude details about your bank and the impact or burden reduction the proposal\nwill have on your bank, your customers and your community. Additionally, you\nshould articulate your unique perspective on the proposal and commend the FDIC for crafting a proposal that exempts\ncommunity banks from paying any special assessment related to the failures of\nSVB and SBNY and encourage the FDIC to finalize the rule as proposed.

\n\n

\n\n\n\n

Format of Letter

\n\n

Introduction

\n\n

A typical comment letter begins with an introductory\nparagraph that provides:

The reason that you are writing to the FDIC (e.g., \u201cI am writing regarding the FDIC\u2019s proposal to exempt community banks under $5 billion from the special assessment,\u201d or \u201cI am submitting this letter in response to the FDIC\u2019s request for comment on special assessments following the systemic risk determinations announced after the failures of SVB and SBNY...\u201d)
A brief background of your bank, your role, and the community you serve. Include anything that makes your bank special or unique (e.g., \u201cI am the President and CEO of Bank of Anytown, a $400 million community bank located in Anytown, US\u2026 we primarily provide agricultural loans and are the only bank with a physical branch presence in Anytown County.\u201d)
Your abbreviated position on the proposed rule (e.g., \u201cI strongly support the FDIC\u2019s proposal to limit special assessments to the 113 large banking organizations that hold large amounts of uninsured deposits,\u201d or \u201cI applaud the FDIC\u2019s decision to exempt community banks with fewer than $5 billion in assets from paying any special assessment for the large bank failures of SVB and SBNY, and I encourage the FDIC to finalize its rule as proposed.\u201d)

\n\n

Comment on specific sections

\n\n

After the introduction, your letter should explain your\nsupport or opposition to the proposal and might discuss aspects of the proposal\nwhich you believe could be improved (if any). The analysis set forth in this\nguide can be used to help you understand the proposal and identify specific\nissues that you might want to address in your letter. Do not simply copy\nand paste the entirety of this background analysis into a letter. Please\nbe cognizant that your comments are public, will be published in the Federal\nRegister, and statements are attributable to you and your bank. Confidential\nSupervisory Information, including examination ratings should not be referenced\nor included in your comments.

\n\n

Conclusion

\n\n

You can conclude your letter by thanking the FDIC for the\nopportunity to submit comments on the proposed special assessments.

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Following the failures of\nSilicon Valley Bank and Signature Bank, the FDIC was appointed as the receiver\nfor both institutions. On March 12, 2023, the Secretary of the Treasury, acting\non the recommendations of the FDIC and the Federal Reserve and after\nconsultation with the President, determined the FDIC could use systemic risk\nauthorities under the FDI Act to protect uninsured depositors in resolving\nthose institutions. By statute, the FDIC is required to recover through special\nassessments on the banking industry any losses to the DIF incurred as result of\nsystemic risk determinations. The FDI Act provides the FDIC with discretion in\nthe design and timeframe for any special assessments, but requires the FDIC to\nconsider the following: (1) the types of entities that benefit from any action\ntaken or assistance provided under the determination of systemic risk; (2)\neconomic conditions; (3) the effects on the industry; and (4) such other\nfactors as the FDIC deems appropriate and relevant to the action taken or\nassistance provided.

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Summary

The proposal applies the special assessment to the types of banking organizations that benefitted most from the FDIC\u2019s protection of uninsured depositors at SVB and SBNY. In general, the FDIC has determined that large banks with large amounts of uninsured deposits benefitted the most from the systemic risk determination.
If finalized, the proposal would apply an annual\nspecial assessment rate of 12.5 basis points, over 8 quarterly assessment\nperiods, to an assessment base equal to an insured depository institution\u2019s\nestimated uninsured deposits reported as of December 31, 2022. For IDIs that\nare not part of a holding company, the first $5 billion in estimated uninsured\ndeposits would be excluded from the assessment base. For IDIs that are part of\na holding company, the first $5 billion of the combined banking organization\u2019s\nestimated uninsured deposits would be excluded.
As proposed, the FDIC estimates that a total of 113 banking organizations would be subject to the special assessment. Banking organizations with total assets over $50 billion would pay more than 95% of the special assessment, while NO banking organizations with total assets under $5 billion would be subject to the special assessment.
The total amount collected for the special\nassessment would be approximately equal to the losses attributable to the\nprotection of uninsured depositors at SVB and SBNY \u2013 approximately $15.8\nbillion.

\n\n

Explain why the FDIC is taking the correct approach by providing\ncommunity banks with fewer than $5 billion in assets an exemption from the\nproposed special assessments rulemaking.

\n\n

Points to Raise

Explain why your bank should not be required to pay any special assessment for the systemic risk determinations given to SVB and SBNY. Here, you may consider discussing how your bank operates a vastly different model than SVB and SBNY. For example, while both of these large, risky banks were reliant on uninsured deposits as a funding source (As of year-end 2022, approximately 94% of SVB\u2019s total deposits were uninsured, and 90% of SBNY\u2019s deposits were uninsured) your community bank is not overly concentrated in uninsured deposits and operates a safer and sound business model.
Explain why your bank should not be responsible\nfor subsidizing the outsized risk large banks pose to the financial system.
Articulate why special assessments, if applied\nto your bank, would negatively impact your bank\u2019s income and how your bank may\nbe forced to pass on higher assessment costs to customers or take other drastic\nmeasures to offset this increased expense.
Explain how important it is to your customers\nthat your bank\u2019s deposits remain available to invest and redeploy into the\nlocal community \u2013 not serving as a backstop or bailout for the reckless\npractices of large banks like SVB and SBNY.
Thank the FDIC for avoiding a one-size-fits-all approach\nto the special assessment, and exempting community banks from the special\nassessment.
Encourage the FDIC to finalize its rulemaking as\nproposed.

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* = 118th Cosponsorhips

117th Vote = How that Member voted on bills that received a vote

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Why Should I Do an In-District Meeting?

The best way to influence a policymaker is to get in front of them in-person. Now through mid-September members of Congress visit their districts and take meetings with constituents. The best way to get a district meeting is to give them a compelling reason to show up. According to studies by leading Washington thinktank the Congressional Management Foundation, the best way to get that meeting is to provide a crowd with media as part of a larger community event. Something like a speaking spot at a community bank open house, or a sponsored event as part of a local fair or sporting event. A tour of your bank works great as well but do invite media (with the office\u2019s approval) and do provide them a crowd to talk to for a few minutes.

How Do I Set Up an In-District Meeting?

The best way to set one of these up is to first contact your state executive, then contact your congressional scheduler. Below is a list of all congressional schedulers, a list of all known Town Halls and a couple tools to help you tell your community banking story.

What do I do after the meeting?

Post about it on social media with photos (tag us and your state association); follow up with the office; let us know.

If you have any questions, please contact your state executive or John Coleman, director of our Advocacy program.

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Small Business Loan Data Collection Proposed Rule (Section 1071) \u2013 Comment Letter Guide

Instructions

This document, along with ICBA\u2019s summary of 1071, is intended to be a guide as you formulate a comment letter in response to the CFPB\u2019s proposed 1071 rulemaking. Your letter does not need to be lengthy or address every component of the proposed rule, but it should be unique to your bank and your community. The CFPB will not consider form letters.

Format of letter

Introduction

A typical comment letter begins with an introductory paragraph that provides:

(1) The reason that you are writing to the CFPB (e.g., \u201cI am writing regarding the CFPB\u2019s proposed rule on 1071\u2026)

(2) A brief background of your bank, your role and the community you serve \u2013 include anything that makes your bank special or unique (e.g., \u201cI am chief compliance officer at Acme First Bank, a $400 million community bank located in Erie, PA\u2026.we primarily provide agricultural loans.)

(3) Your abbreviated position on the proposed rule (e.g., \u201cI am concerned about the proposed rule,\u201d or \u201cI object to the proposed rule,\u201d or \u201cthe proposed rule will negatively impact my bank and community.\u201d)

Comment on specific sections or provisions

After the introduction, your letter can concentrate on specific provisions of the proposed rule on which you would like to comment. The section-by-section analysis (below) should help you focus on questions and issues that you might want to address in your letter.

Conclusion

You can conclude your letter by thanking the CFPB for the opportunity to comment.

Submission

When you have finished drafting your letter, copy and paste it into [ICBA\u2019s Grassroots Center]. Comments are due by January 6, 2022.

Section-by-Section Analysis

Because the proposed rule is nearly 1,000 pages, you do not need to address every section, provision or component of the proposed rule when drafting your letter. However, please review each section to see if there are provisions that are particularly burdensome to your bank and warrant a response.

\u00b7 Scope and coverage (pg. 3)

\u00b7 Definition of \u201csmall business\u201d (pg. 5)

\u00b7 Data collection and reporting (pg. 6)

\u00b7 Publication of the data (pg. 8)

\u00b7 Firewall provisions (pg. 9)

\u00b7 Compliance date (pg. 10)

Scope and Coverage

Summary

The CFPB is proposing that financial institutions (\u201cFI\u201d) that originate 25 or more small business loans in each of the two preceding calendar years will have to comply with this rule (i.e., collect and report data on credit applications made by small businesses). Although the CFPB was asked to exempt FIs that are below $1b in assets, FIs that are designated as minority depository institutions (\u201cMDI\u201d) or community development financial institutions (\u201cCDFI\u201d), and FIs that are in rural areas, the Bureau is not proposing any exemptions aside from the loan volume threshold of less than 25 loans per year.

Asset size-based exemption

Explain why you support an asset size-based exemption of $1 billion, and why you oppose a volume-based threshold of 25 or more loans.

Rationale for Position

\u00b7 An asset size-based exemption would better tailor the rule to community banks\u2019 level of sophistication and ability to comply with this rule.

\u00b7 Basing an exemption on asset size would provide assurance of coverage or non-coverage

o In contrast, an exemption threshold based on volume could vacillate, where a bank might have to incur expenses to comply with the rule for a certain number of years, only to find that it is no longer covered if starts originating fewer loans.

\u00b7 Even banks as small as $50m in assets will have to comply with this rule if they originate 25 or more loans per year, despite the likelihood of a small staff and manual operation.

Points to Raise

\u00b7 Illustrate if your bank is a \u201csmall\u201d bank that originates more than 25 small business loans per year.

o Explain your asset size, how many branches your bank has, the number of employees, and what type of loans you originate (i.e., do you originate smaller-balance loans that would be too costly for large FIs to originate?)

\u00b7 State how many small business loans you originate each year.

\u00b7 Explain if your bank would consider decreasing the number of small business loans you originate to avoid coverage by this rule.

\u00b7 Provide examples of how your bank originates small business loans, especially if it does so manually (i.e., no access to special software that helps your bankers originate the loans)

Mission-based exemption

Explain why mission-based banks, such as MDIs and CDFIs, should be excluded from coverage under this rule since they have already demonstrated and received special recognition for serving the small business applicants prioritized under Section 1071.

Rationale for Position

\u00b7 MDIs and CDFIs play important roles in serving the needs of historically underserved communities or primarily serving low-to-moderate income consumers.

\u00b7 These statutory designations typically provide FIs with special accommodations in recognition of their service to their communities, such as an exemption from the Qualified Mortgage rule for CDFIs.

Points to Raise

\u00b7 Explain the community your bank serves and how.

o Provide examples of special products for small businesses.

\u00b7 Provide comment on whether your bank already provides capital to minority-owned and woman-owned small businesses as part of its mission and mandate.

\u00b7 Explain why you believe that you MDI/CDFI bank should be exempt from this rulemaking.

Geographic-based exemption (applicable to banks located in rural areas)

Urge the Bureau to exempt rural banks from having to comply with this rule, given that rural small businesses need greater access to credit \u2013 not additional barriers.

Rationale for Position

\u00b7 Community banks in rural parts of the country play an outsized role in providing financial services and products in those communities.

\u00b7 Community banks in rural areas are often the only insured depository institution in their county or region.

\u00b7 Losing a bank in rural area due to regulatory burden would be a significant detriment for the small businesses seeking access to credit.

\u00b7 Of note, banks not located in a metropolitan statistical area (\u201cMSA\u201d) do not have to comply with HMDA, regardless of size or loan volume.

Points to Raise

\u00b7 Explain why you believe that rural banks should be exempt from this rulemaking.

\u00b7 Explain if your bank is one of only a few or limited number of banks in the area

\u00b7 Describe the types of products and services you provide that reflects the type of area you serve.

o Explain how your bank might not offer these products and services if it were compelled to comply with this rule.

Definition of \u201cSmall Business\u201d

Summary

FIs need to collect and report data only on credit applications made by \u201csmall businesses.\u201d The CFPB is proposing to define a \u201csmall business\u201d as a business that had $5m or less in gross annual revenue (\u201cGAR\u201d) for its preceding fiscal year. Further, a FI would only be covered by this rule if it originated 25 or more loans to \u201csmall businesses\u201d (e.g., if a bank originated a total of 40 business loans, but only 20 were made to businesses with GARs under $5m, then the bank would NOT be covered by this proposed rule).

Recommend that the CFPB to use GAR when defining \u201cSmall Business,\u201d but explain that a $1 million threshold is more characteristic of a \u201csmall\u201d business, especially in certain parts of the country.

Rationale for Position

\u00b7 A bright-line threshold, such as GAR, provides a quick and easy way for banks to assess whether they have to start collecting data from the applicants.

\u00b7 However, a $5m threshold is too large and does not appropriately describe a \u201csmall business.\u201d

o For example, depending on the region, a $5m business could actually be quite large.

\u00b7 According to the US Census Bureau, a $1 million GAR threshold would cover 95 percent of all businesses.[1]

Points to Raise

\u00b7 Explain why using the bright-line test of using GAR to determine whether your bank will have to collect data on an applicant is beneficial.

\u00b7 Provide comment on why a GAR of $5m is too high of a threshold and why that is not indicative a small business in your community.

o Provide an example of the average size business loan you currently make.

o Provide an example of the average GAR of the businesses you currently serve.

\u00b7 Explain how a $5m threshold essentially cover all business loans you make, thereby negating the distinction of loans to \u201csmall\u201d businesses.

Data Collection and Reporting

Summary

Covered FIs would be required to compile and maintain several data from small business loan applications. A FI may rely on statements from the applicant when compiling data, unless it verifies the information provided, in which case it shall use the verified information. The Bureau proposes that a covered FI maintain procedures to collect the following information at a time and in a manner that is reasonably designed to obtain a response.

*Please review ICBA\u2019s Summary of Section 1071 for a full list of mandatory datapoints that the CFPB proposes for banks to collect and report. Only select datapoints are discussed here.

Ethnicity, race and sex

Recommend that the Bureau remove the requirement for banks to guess an applicant\u2019s race and ethnicity based on visual observation.

Rationale for Position

\u00b7 While most of the datapoints provide the FI with a field option to record that an applicant \u201cdid not provide\u201d or \u201cdeclined to provide\u201d the requested information, the FI would be required to guess the race and ethnicity of the principal owner of the applicant based on a visual assessment or surname analysis if meeting with the applicant in-person.

\u00b7 This proposed provision would not only put the bank and the customer in an uncomfortable situation, but fintechs and big banks likely will not be burdened by this requirement, given they reliance on automated and online applications.

Points to Raise

\u00b7 Describe how your bankers would feel if they had to guess the race and ethnicity of the principal owner(s) of a small business applicant.

o Explain how the guesses likely would not be accurate and how that would create \u201cbad data\u201d for the Bureau.

\u00b7 Explain how examiners review your banks and whether it would be likely for them to scrutinize your guesses.

\u00b7 Separate from the comfort level of your bankers, provide your opinion on how uncomfortable your small businesses applicants would feel if their demographic information were guessed.

Pricing information

While recommending that the Bureau remove all the discretionary datapoints, emphasize the removal of pricing information as a datapoint.

Rationale for Position

\u00b7 Although this information is likely to already be known to a bank, reporting this information that ultimately becomes public will create:

o competitive risks for the bank,

o privacy risks for the customer, and

o misconceptions about the underlying rationale for pricing.

Points to Raise

\u00b7 Describe why it would it be disadvantageous for competitors to know how you price your loans.

\u00b7 Explain how small business customers would be upset to learn that the terms of their loan were made public by being reversed-engineered.

\u00b7 Provide examples of reasons that some loans are priced higher than others.

o For example, explain how credit risk, collateral, or complexity of the deal all lead to different pricing terms.

\u00b7 Explain how publishing pricing information will lead to erroneous conclusions from the public.

o For example, examiners would have access to contextualizing information (collateral, credit profile, etc.) that the general public does not.

NAICS Code

Urge the removal of the NAICS code datapoint \u2013 it is not mandated by statute and its publication will raise significant risk of re-identification for small business applicants.

Rationale for Position

\u00b7 The North American Industry Classification System (\u201cNAICS\u201d) is a six-digit code that is used to classify and categorize businesses based on their industry, service, or product.

o For example, through a NAICS code, it is possible to determine that a business is a motor vehicle dealer, a retail store, a health care provider, etc.

\u00b7 There are nearly 1,100 NAICS codes available.

\u00b7 Some banks are unfamiliar with NAICS codes and it would be difficult for them to start collecting.

\u00b7 Additionally, small businesses customers are unfamiliar with the code and are unlikely to know their individual code.

\u00b7 Finally, publication of their NAICS, along with the applicant\u2019s census tract, will provide opportunities for re-identification, especially in rural areas.

Points to Raise

\u00b7 Explain that you do not currently collect NAICS codes from small business customers.

o Further, explain how small business customers do not typically know their NAICS code.

\u00b7 Describe the difficulty in collecting and reporting NAICS codes.

\u00b7 (If you are located in a rural area) Explain that there is a limited number of each type of business (e.g., one car dealership, one or two doctors\u2019 offices, etc.).

o Illustrate the relative ease for the public to identify your customers based on their NAICS code and census tract.

o Explain how your customers feel if they knew there was a risk that their loan terms would be reversed-engineered or re-identified.

Publication of the Data

Summary

The proposed rule would require covered FIs to annually report data collected from their small business applicants. Though 1071 requires the publication of the data, the Bureau has authority and discretion to not publish datapoints that pose an undue privacy risk (i.e., high potential to identify applicants from anonymized data). The Bureau will employ a privacy-balancing test to determine which data it will make publicly available, but it is not publishing the methodology for that test until the rule is final and the data has already been collected.

Urge the Bureau to aggregate certain datapoints, especially data that can be used to re-identify small business applicants. Explain how privacy concerns are paramount to small business applicants and that publication of their data, especially in rural areas, will pose an undue risk.

Rationale for Position

\u00b7 Privacy concerns are a high priority among many community banks.

\u00b7 Their customers take their privacy seriously and will be dismayed if their information is made public.

\u00b7 Though the information will not contain personally identifiable information (\u201cPII\u201d), the data can nonetheless be reverse-engineered, and the applicant can be reidentified through certain datapoints, such as the combination of the NAICS code and the census tract of the applicant.

Points to Raise

\u00b7 Explain your concern for your customer\u2019s privacy, as well as their concern about their own privacy.

o Describe the concern that small businesses had about their data being published in PPP (if applicable).

\u00b7 (If you operate in a rural area) Illustrate how a small business might be concerned if its NAICS code and census tract were published.

\u00b7 Provide feedback on which datapoints should not be published in order to maintain your customers\u2019 privacy.

Firewall Provisions

Summary

Referred to as a \u201cfirewall,\u201d the proposed rule would require FIs to restrict the access of certain individuals (underwriters, employees making a determination relating to an application, etc.) to certain race or demographic information provided by an applicant.

If a FI determines that an employee \u201cshould have access\u201d to covered information, or cannot feasibly segregate the information, then it must provide a notice to the applicant of the underwriter\u2019s access to such information, along with notice that the financial institution may not discriminate on the basis of such information.

Explain that the firewall provision is another reason to exempt community banks from coverage, describing how the inability to firewall information will serve as a competitive disadvantage for smaller community banks.

Rationale for Position

\u00b7 Community banks are relatively small and do not have enough staff to feasibly firewall the demographic information.

\u00b7 Although the proposed rule would provide an exemption to the firewall requirements for financial institutions that cannot \u201cfeasibly\u201d comply with the requirement, providing the applicant with notice of that fact could raise questions or doubts in the mind of the applicant as to the impartiality of the credit decision.

Points to Raise

\u00b7 Explain whether your bank will be able to firewall demographic information away from underwriters.

o You may want to highlight the number of employees your bank has in responding to your ability to firewall information.

\u00b7 Describe how complying with the firewall provision will adversely affect your bank.

o For example, if you provided notice to an applicant that their race, sex, or ethnicity were being shared with the underwriter, the applicant might become suspicious of whether their demographic information played a role in the credit decision.

\u00b7 Because large FIs and fintechs will be able to comply with the firewall (and as such, not be required to provide applicants with a notice of non-compliance), explain how smaller banks might have a competitive disadvantage because of this requirement.

Compliance Date

Summary

The CFPB is proposing to make compliance date for the rule approximately 18 months after the date of publication of the final rule in the Federal Register.

Urge the Bureau to establish a 30-month compliance deadline, or in the alternative, stagger the compliance date by providing smaller financial institutions more time to comply with the rule after unanticipated issues are resolved.

Rationale for Position

\u00b7 While some larger FIs might have internal staff to develop systems to comply with a final rule, most community banks will have to rely upon vendors and software.

\u00b7 Given this is an entirely new regulatory paradigm, there is no software currently in the market to comply with this rule.

Points to Raise

\u00b7 (If your bank is not a HMDA filer) Discuss how your bank is not experienced with

\u00b7 data collection and reporting regulations.

\u00b7 Illustrate how your bank would comply with this rule and how long preparation would take, detailing the difficulty of compliance.

\u00b7 Explain how your bank\u2019s software is typically licensed or bought from a 3^rd party.

\u00b7 Because this is rule is not yet final, there are currently no vendors that offer a software solution to comply with this rule.

o Explain in your letter how you are required to conduct due diligence on new 3^rd party relationships and how long that due diligence takes.

\u00b7 If you had to on-board a new vendor, explain how long it would take your bank to:

o find an appropriate vender,

o conduct due diligence,

o integrate the vendor\u2019s software with your existing software, and

o train your staff on the new software.

\u00b7 Provide any negative experiences when on-boarding vendors in response to HMDA expansion or compliance with TRID.

\u00b7 Larger banks generally have more resources to dedicate toward compliance with new rulemaking and can serve as early test-cases and lessons learned from compliance with the rule.

*** When you have finished drafting your letter, copy and paste it into ICBA\u2019s Grassroots Center ***

Comments are due by January 6, 2022

[1] U.S. Census Bureau, Statistics for All U.S. Firms with Paid Employees by Industry, Gender, and Employment Size of Firm for the U.S. and States: 2012 More Information 2012 Survey of Business Owners, American Fact Finder, (last visited Feb 27,2017), available at http://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=SBO_2012_00CSA09&prodType =table/

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